Electronic Arts (ERTS)

Q2 2012 Earnings Call

October 27, 2011 5:00 pm ET


John S. Riccitiello - Chief Executive Officer and Executive Director

Peter R. Moore - Chief Operating Officer

Eric F. Brown - Chief Financial Officer and Executive Vice President

Frank D. Gibeau - President of The EA Labels

Rob Sison -

Peter Ausnit - Vice President of Investor Relations


Edward S. Williams - BMO Capital Markets U.S.

Douglas Creutz - Cowen and Company, LLC, Research Division

Neil A. Doshi - Citigroup Inc, Research Division

Brian Karimzad - Goldman Sachs Group Inc., Research Division

Michael Hickey - National Alliance Capital Markets, Research Division

Phil Anderson - Longbow Research LLC

Brian J. Pitz - UBS Investment Bank, Research Division

John Taylor - Arcadia

Colin A. Sebastian - Robert W. Baird & Co. Incorporated, Research Division

Arvind Bhatia - Sterne Agee & Leach Inc., Research Division

Atul Bagga - Lazard Capital Markets LLC, Research Division

Ryan Gee - BofA Merrill Lynch, Research Division



Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Mr. Rob Sison, Vice President of Investor Relations. You may begin.

Rob Sison

Thank you. Welcome to EA's Fiscal 2012 Second Quarter Earnings Call. With me on the call today is John Riccitiello, our CEO; Eric Brown, CFO; Peter Moore, COO; and Studio President, Frank Gibeau, will join for the Q&A.

Please note that our SEC filings and our earnings release are available at ir.ea.com. In addition, we have posted earnings slides to accompany our prepared remarks. Lastly, after the call, we will post our prepared remarks, an audio replay of this call and a transcript.

This presentation and our comments include forward-looking statements regarding future events and future financial performance of the company. Actual events and results may differ materially from our expectations. We refer to you our most recent Form 10-Q for discussion of risks that could cause actual results to differ materially from those discussed today. Electronic Arts makes these statements as of October 27, 2011, and disclaims any duty to update them.

Throughout this call, we will discuss both GAAP and non-GAAP financial measures. Our earnings release and the earnings slides provide a reconciliation of our GAAP to non-GAAP measures. These non-GAAP measures are not intended to be considered in isolation from, as a substitute for, or superior to our GAAP results.

We encourage investors to consider all measures before making an investment decision. All comparisons made in the course of this call are against the same period in the prior year unless otherwise stated. Now I'll turn the call over to John Riccitiello. John?

John S. Riccitiello

Thanks, Rob. We are pleased to report a strong second quarter with results ahead of the top and bottom line expectations that we provided on our last earnings call. Our results reflected a tremendous performance by our EA SPORTS titles and a strong showing for our newest game on the Facebook platform, The Sims Social.

EA has delivered solid results in the first half of our fiscal year, and we are now focused on our biggest titles for the holiday. FIFA 12 is having its best year ever with a critical index of 92 and record sales in both North America and Europe. Battlefield 3 was launched on Tuesday and has opened very strong. We shipped 10 million units to retail and we are already receiving reorders. The data is still early but sell-through is strong.

Next up is Need for Speed The Run on November 15 and then the most anticipated event of the year Star Wars: The Old Republic launching on December 20. We also have a number of social and mobile titles that we will announce closer to their launch. Based on this strong performance and our expectations for the holiday, we are raising the midpoint and narrowing our full year non-GAAP EPS guidance to $0.75 to $0.90 while increasing both our total revenue guidance and our Digital revenue guidance.

We are increasing the low end of the EPS guidance range by a $0.05 based on our strong performance in Q1 and Q2 and in part based on the great initial performance of Battlefield 3, partially offset by the later ship date of Star Wars: The Old Republic. Eric Brown will provide more detail on this.

Next, I want to give you a progress report on the 3 major strategic initiatives we defined at the start of our fiscal year. Our first priority is brand. EA has roughly one dozen globally-recognized brands, often referred to as intellectual properties, which are at the foundation of our company. Together, they constitute a powerful competitive advantage unmatched by our principal competitors. Our mission is to transform these brands from single event every 1 to 2 years to 365-day businesses with packaged goods launches sustained by frequent updates of downloadable content and expansions into social and mobile platforms.

Flagship brands like Battlefield, Need for Speed, Mass Effect, FIFA and Madden are now built on this strategy. Each is expected to deliver greater revenue and profitability than we generated in the past on single-event packaged goods launches. And this is a strategy that only EA can deliver on. Our competitors either have too few brands or have not demonstrated the ability to project their games on a multiple platform.

A prime example of this strategy is The Sims brand. Today, The Sims Pack is the leading PC game in the market and it is performing well on consoles. The Sims is a leader on Apple platforms and The Sims Social is doing exceptionally well on Facebook, desizing [ph] several leading games to become the #2 on Facebook. The Sims Social is a certified hit that is based on one of EA's most valuable brands.

Our next priority is platform. Over the past 3 years, EA has been investing to put in place the foundation for true cross-platform capability with our brands, and for a high-value, safe and secure set of services we can offer our consumers online. Our Nucleus Registration and Entitlement Service, which now boasts over 140 million users, was our first step in this direction. The EA SPORTS Online Pass is a program enabled by this platform investment. The Nucleus system is also a key technology that allows us to extend our relationships with retailers to sell on game sites such as GameStop, Walmart, Amazon, and the Game Chain in Europe.

Read the rest of this transcript for free on seekingalpha.com

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